TMI Blog1960 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the court was delivered by S. K. DAS, J. --- These two appeals with special leave have been heard together. They arise out of similar facts and the question of law arising therefrom is the same. The short facts are these. One Balkrishna Parushottam Purani died on November 11,1947. He left behind him three widows and two daughters. The three widows were named Indira, Ramluxmi and Prabhuluxmi. These widows as legal heirs inherited the estate of the deceased, which consisted of immovable properties situate in Ahmedabad, shares in joint stock companies, money lying in deposit, and share in a registered firm. For the two assessment years 1950-51 and 1951-52 (the corresponding account years being the Sambat years 2005 and 2006) the Income-tax Officer issued notices to the legal heirs of Balkrishna Purushottam Purani. Pursuant to those notices, returns were filed under the heading, "Legal heirs of Balkrishna Purushottam Purani", in one case and in the name of the estate of Balkrishna in the other ; the status was shown as "individual" in one case and "association of persons" in the other. They were signed by Indira, one of the three widows. For the assessment year 1950-51 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax References Nos. 52 and 53 of 1955. The leading judgment was given in Income-tax Reference No. 52 of 1955. The High Court held that the Tribunal was in error in coming to the conclusion that the three widows could be assessed in the status of an association of persons with regard to the income which they earned as heirs of their deceased husband. Therefore, it answered question No. 3 in the negative. The Department represented by the Commissioner of Income-tax, Bombay, then applied to this court and obtained special leave to appeal from the judgment and orders of the High Court of Bombay in the two references. These two appeals have been filed in pursuance of the special leave granted by this court. The appellant is the Commissioner of Income-tax, Bombay, and the assessee is the respondent. The argument on behalf of the appellant is that the High Court was in error when it said that "what is required before an association of persons can be liable to tax is not that they should receive income but that they should earn or help to earn income by reason of their association, and if the case of the Department stops short at mere receipt of income, then the Department must fail in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, and interest on deposits there was no finding of any act of joint management. Indeed, the main item consists of the dividends and it is difficult to understand what act of management the widows performed in respect thereof which produced or helped to produce income. On the contrary, the statement of the case shows that the assessee filed lists of shares, copies whereof are marked annexure C and form part of the case, which showed that the shares stood separately in the name of each one of the three widows and this was not denied by the Department. We now come to the main question in this appeal. What constitutes an "association of persons" within the meaning of the Income-tax Act? It has been repeatedly pointed out that the Act does not define what constitutes an association of persons, which under section 3 of the Act is an entity or unit of assessment. Previous to the year 1924, the words of section 3 were "individual, company, firm and Hindu undivided family." By the Indian Income-tax (Amendment) Act of 1924 (XI of 1924) the words "individual, Hindu undivided family, company, firm and other association of individuals" were substituted for the former words. By the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the Oxford Dictionary, "to join in common purpose, or to join in an action." Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont, C. J., in Commissioner of Income-tax v. Lakshmidas Devidas at page 589 and also in In re Dwarakanath Harischandra Pitale. In In re B. N. Elias, Costello, J., put the test in more forceful language. He said : "It may well be that the intention of the Legislature was to hit combinations of individuals who were engaged together in some joint enterprise but did not in law constitute partnerships....... When we find, ....... that there is a combination of persons formed for the promotion of a joint enterprise ...... then I think no difficulty arises whatever in the way of saying that these persons did constitute an association ........" We think that the aforesaid decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of section 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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